Some Remarkable Structured Investment Vehicles, and the Spectacular Financial Crisis of 2008-2018

Mathematical Finance/Financial Engineering Seminar
Thursday, October 20, 2011 - 11:05
1 hour (actually 50 minutes)
Skiles 005
Penn State, Department of Statistics

Hosted by Christian Houdre and Liang Peng

At this time, in late September, 2011 the Dow Jones Industrial Average has just suffered its worst week since October, 2008; the Standard & Poor 500 Average just completed its worst week in the past five years; and financial markets worldwide under severe stress. We think it is timely to look at aspects of the role played by "financial engineering" (also known as "mathematical finance" or "quantitative finance") in the genesis of the on-going crisis. In this talk, we examine several structured investment vehicles (SIVs) devised by financial engineers and sold worldwide to many "investors". It will be seen that these SIVs were doomed from inception. In light of these results, we are dismayed by the mathematical models propagated over the past decade by financial ``engineers'' and ``experts'' in structured finance, and it heightens our fears about the durability of the on-going worldwide financial crisis.